When you started your business, you probably weren't thinking about full-time employees, tax bills and tax brackets, business expenses, or working with CPA tax professionals during tax season. Tax credits weren't on your mind, either, which is understandable. But now that you're up and running, it's important to learn which credits your business is eligible for.
Use this article as your introduction to tax credits for your small business, including what they are, eligibility requirements, and how to claim them.
What Are Small Business Tax Credits?
Tax credits allow you to minimize your annual tax burden. They are applied to the taxes your small business owes when your return is filed and cannot be used to reduce your taxable income. Some tax credits your business might be eligible for are common, while others are more obscure but still useful.
Small Business Tax Credits You Could Be Eligible For
Here are some of the most common tax credits your small business may be eligible for.
The electric vehicle credit, alternative motor vehicle credit, employment credit, and empowerment zone credit are popular among small business owners.
This is not a full list of tax credits or a complete listing of the credits your small business is eligible for. It can be difficult to identify every tax credit your small business is eligible for without experts on your side. Tax advisory from 1-800Accountant can help your business zero in on all eligible tax credits today while searching for new credits as your operations scale up.
Difference Between Tax Credits vs. Tax Deductions
Tax credits and tax deductions are sometimes used interchangeably, perhaps because both will help to minimize your income tax liability. But they aren't the same and are applied in different ways. A tax credit for your small business reduces the money you owe, while a tax deduction is applied to your taxable income.
You may take advantage of all the credits and deductions your small business is eligible for.
Eligibility For Small Business Tax Credits
There are eligibility thresholds that your business must meet in order to qualify for certain tax credits. Common criteria include:
The tax credits your business qualifies for can change from year to year, depending on where you fall within a specific threshold.
Claiming Small Business Tax Credits
You must file Form 3800 to claim any general business credits you're eligible for. An area on Form 3800 allows you to add together each individual business tax credit you've identified to show the total amount of tax credits you will be taking. It also allows you to ensure that you haven't exceeded any limitations on the credits you can take.
If you take an excessive or outsized amount of tax credits, the IRS may audit your business.
Let 1-800Accountant Handle Your Small Business Tax Credits
If you aren't taking advantage of every eligible tax credit, you are leaving money on the table. It can be challenging to know how to identify each tax credit and take the necessary steps to claim them. That's why so many small business owners and entrepreneurs use 1-800Accountant, America’s leading virtual accounting firm for small businesses, as their trusted financial partner.
Whether it's bookkeeping, tax advisory, quarterly estimated taxes, or any of our professional accounting services, we have the affordable solutions you need to ensure your business always takes every tax credit it is entitled to. Schedule a quick consultation – usually 30 minutes or less – to learn more.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. 1-800Accountant assumes no liability for actions taken in reliance upon the information contained herein.